Research Paper – The Psychological

Contract
One of the final stages of a selection process is the agreement of an employment
contract. This is an explicit, signed contract that outlines all the tangible legal
obligations that the organisation and the new employee agree to. At the same
time an implicit, yet equally important contract is generated. This is known as
the 'psychological contract'. The psychological contract concerns less tangible
expectations between the organisation and employee, and its implicit nature
makes it particularly delicate. It can incorporate areas as diverse as training and
development opportunities, and the expected style of communication.
Breaches to this contract can be just as serious as breaches of employment
contracts. They can result in reduced employee motivation and productivity, in
high staff turnover rates, and even in malicious acts. The contract is complicated
further by the fact that it is constantly evolving and its unspoken nature means
it can be difficult to manage.
The psychological contract is unique to each employee, as it describes
expectations and obligations between them and the organisation. However,
there are patterns to these expectations. For example, some employees have
very few expectations, asking only that the organisation fulfils its contractual
obligations and in return they feel obligated only to complete the explicit
requirements of their role. Such a pattern of expectations and obligations is
referred to as a 'transactional psychological contract'.
By contrast, other employees place a large number of expectations on their
organisation. They may expect ongoing training and development, promotion
opportunities, involvement in decision-making, and more. However, in return
they feel obligated to go beyond the explicit requirements of their role. This is
manifested in behaviours such as working additional hours, sharing innovative or
creative ideas with the organisation or through long-term loyalty to the
company. This pattern is described as a 'relational psychological contract'. The
transactional and relational contracts represent different ends of a continuum, as
shown in Diagram 1, and individual contracts typically fall between the two
poles.

Difference in Behaviour
The nature of a contract, whether it is more transactional or relational, is
expressed by differences in behaviour. Those with a more transactional contract
tend to exhibit 'role' behaviours, such as starting and finishing on time and
completing assigned tasks. The more relational a contract becomes, the more
likely an individual is to show 'pro-role' behaviours that go beyond their remit,
such as working additional hours, providing assistance to colleagues, or
volunteering for extra projects.

Changes to Psychological Behaviour

The nature of an employee's psychological contract can and will change with
time. For example, when a new member of staff joins the organisation, it is
likely that their contract will be mostly transactional, focusing around the signed
 contract, although some individuals may have additional expectations such as
training opportunities. Over time the nature of the contract evolves, as employee
and employer meet mutual expectations and consequently form a stronger bond.
For example, after a year, the individual may expect that they will receive fair
promotion opportunities and ongoing development in their role, or even
involvement in decision-making. They may also feel obliged to work harder or for
longer hours when required, and to speak highly of their organisation to
colleagues and external contacts.
The nature of the contract is also likely to vary, relative to the employee's
position in the company. Typically, the psychological contract of those in more
senior level positions may be of a more transitional, transformational, or
relational nature.
Although changes to the nature of the psychological contract tend to be gradual,
there are occasions when the changes are more rapid, such as when an
employee feels that their contract has been broken. For example, somebody who
expects that the organisation will provide fair promotion opportunities, could feel
that their contract has been violated if they do not receive a promotion, or
believe that they have been treated unfairly.

Violations of the Psychological Contract

The organisation will feel the effect of such a perceived violation through
changed employee behaviours, the nature of which will be dependent upon the
current nature of their psychological contract:
Relational
An employee who previously had a relational contract may withdraw some of
their pro-role behaviours and may, for example, stop sharing their innovations
with the organisation. If there was a further violation, their contract may then
move from relational to transactional. In such situations the employee would
withdraw most, if not all, of their pro-role behaviour, and is likely to adopt a
'work to rule' mentality.
Transactional
A breach of an employee’s transactional contract may occur if, for example,
organisational restructuring requires them to complete more work without
additional remuneration. Since they don't have any pro-role behaviours to
withdraw, they may instead engage in 'anti-role' behaviours; actions that are
detrimental to the organisation. At first these may be attempts to restore a
perceived balance, such as arriving late or taking long lunch breaks, but in more
extreme cases may result in actions such as petty theft. Employees who are
desperate to restore a sense of control may even resort to vandalism or
sabotage.
 Effect of a breached contract
As these examples show, one of the first effects to the organisation of a
perceived breach of psychological contract will be the loss of those behaviours
that are outside employees’ job roles, which were previously performed due to a
sense of loyalty and commitment. These prorole or organisational citizenship
behaviours are of huge impact to organisational requirements, as illustrated in
Diagram 2.

Diagram 2: Some areas of essential business activity are not covered by job
roles. Organisations need to manage these 'white spaces'.
The large outer circle represents the behaviours required by the organisation for
it to both function and flourish. To accomplish these requirements the
organisation establishes a number of roles, represented by the smaller circles.
However, the changing nature of organisations and the huge range of possible
required behaviours, means that there are often significant areas that are not
covered by the defined roles. This represents the organisational citizenship
behaviours, which could range from the obvious, such as working additional
hours, to the less obvious, such as inter-departmental cooperation or the sharing
of new ideas. These are important to the smooth and successful functioning of
the organisation, and the loss of such behaviours could be hugely detrimental.
However, as they are not part of any individual’s defined role, they will be some
of the first behaviours to be withdrawn following a perceived contract violation.

Box 1: Estimating the Financial Cost

The violation of psychological contracts can have a significant financial
implication for the organisation, as employees who feel their contracts have
been broken may react with reduced effort, inefficient communication, reduced
additional hours and so on.
Organisations can calculate the financial implications of broken psychological
contracts as follows:

Number of employees affected

 multiplied by
Average number of hours of reduced effort (per week, per employee)
multiplied by
Average hourly wage or monthly salary of affected employees
multiplied by
Number of weeks that reduced effort lasts
Example
The reduced effort resulting from a breached contract can easily amount to one
hour less being worked each week. If 100 people within an organisation are
affected, then the company will lose 400 hours per month. Taking an average
wage of £20 per hour, then for this group of 100 employees, the cost to the
organisation is at least £8000 a month.
Research suggests that it typically takes six months to overcome a violated
contract, allowing for the employees to re-establish trust and effort, or for the
organisation to introduce formal systems and processes to fulfil the behaviours
that were previously fulfilled through citizenship behaviours. Over a six-month
period therefore, these broken contracts could equate to organisational losses
worth at least £48,000.

How to Prevent the Contract Being Broken

Organisations can protect themselves from the negative effects of contract
violations by establishing a reputation of trust, support and fairness. If an
organisation has generally treated its employees well, has kept its promises and
treated them fairly, then they are less likely to react negatively when they feel
let down. However, the more that contracts are broken, the less value this
reputation will hold.
If this reputation was never developed, or has been reduced through previous
negative events, then the organisation is liable to suffer the full consequences of
a perceived violation, as already outlined.

What To Do If It’s Already Been Broken

Once an individual feels that their psychological contract has been violated, there
is no quick and easy fix, which of course is one more reason why violation should
be avoided in the first place. However, it is possible to take steps to restore
faith. One of the first and most obvious things to do in this situation is for
managers to consider carefully the feasibility of any commitments to employees
before making them.

When individuals feel that their organisation is not fulfilling their long-term
promises then they may focus more upon short-term rewards. This is why during
times of upheaval, employees may be very demanding regarding short-term,
transactional expectations, such as pay or benefits.

If the organisation wishes to overcome this, they must ensure that short-term
promises are delivered so that individuals can begin to focus upon longer-term
investments and rewards. This will begin the process of restoring faith in the
willingness and ability of the organisation to meet the employee’s expectations,
which will then lead to individuals being more willing in turn to invest more in
the organisation, returning to some of the pro-role behaviours that were
previously exhibited.

A key step in achieving this can be discussing mutual expectations more openly.
By openly discussing what they expect from an organisation, individuals can
maximise the possibility of seeing these fulfilled. In return, by making explicit
what they want from individuals, organisations can ensure that workers know
what is expected of them.

The potential impact of broken psychological contracts is immense, as shown in

Box 1. If organisations are to avoid this loss of potential they must start by
recognising and addressing the psychological contract.